The Bank of England, once widely expected to start weaning Britain off near-zero interest rates this month, now looks set to signal no rise in borrowing costs until the middle of next year.
The bank kept rates at 0.5% — their level since the depths of the financial crisis in 2009 — at its monthly policy meeting which ended yesterday. More attention will be paid to economic projections the bank is due to publish on November 12, which will reflect clouds that have gathered over Britain’s fast-recovering economy since the bank made its last quarterly forecasts in August.
A combination of weak inflation that could fall below 1% soon, still-feeble wage growth and the risk of a return to recession in the eurozone, has already prompted some of the bank’s top officials to say that they are not ready to start returning to more normal monetary policy.
A cut in the bank’s inflation and growth expectations next week would probably encourage financial markets to add to their bets that there will be no rate hike until mid-2015, after Britain’s parliamentary election in May, or possibly later.
Britain’s economy has outpaced its peers in the Group of Seven industrialised nations club this year, finally bouncing back from years of stagnation after the financial crisis. It is showing signs of a slowdown but, so far, it looks like the slump in the eurozone has not had a major impact.
Data yesterday showed industrial output picked up in September, helped by a rebound in oil and car production that had been hit by shutdowns in August.
Only two of the Monetary Policy Committee’s nine members have voted to raise rates so far and there are no signs any of their colleagues are likely to join them any time soon.
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